Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Lehman, SunCal, Vertis, American Media: Bankruptcy

Bank of America NA was on the losing end of an opinion in which the bankruptcy judge ruled Lehman Brothers Holdings Inc. is entitled to the return of $500 million that the bank improperly set off in violation of the so-called automatic stay.

U.S. Bankruptcy Judge James M. Peck said the case was “an example of asking for more and getting less.” On top of requiring Bank of America to return the $500 million plus interest, the judge is scheduling another hearing to assess how much in sanctions to impose on the bank for violation of the automatic stay.

Peck explained in his 46-page opinion on Nov. 16 how the Charlotte, North Carolina-based bank was one of Lehman’s main clearing banks. In the ordinary course of business, the account would sometimes have a negative balance during the course of the day. Concerned in the summer of 2008 about Lehman’s deteriorating finances, the bank demanded that Lehman deposit $500 million into a special account to cover any over advances.

To document the arrangement, there was a note and a security agreement so the $500 million would secure any over-advances in the clearing account.

When Lehman filed for Chapter 11, there was no overdraft in the clearing account. The bank nonetheless set off the $500 million against other obligations owing by Lehman. The bank took the position that it had a common law right of set off in addition to the security agreement. The bank also argued that it could drawn down the $500 million under so-called safe harbor provisions in bankruptcy law where certain types of securities transactions are not halted by the automatic stay.

Peck heard the dispute on competing motions for summary judgment, where both sides said there were no factual disputes, leaving the judge to decide only questions of law.

Peck came down on Lehman’s side, pointing to the note which said that the $500 million was collateral for debt arising in connection with the clearing account. He said the bank had no right to claim the cash as collateral for any other obligations.

Peck said the result “does include a measure of irony.” Had the bank only held the money in an ordinary account, a so-called banker’s lien would have existed and Bank of America could have set the funds off against any other obligation Lehman owed.

Peck explained how the bank’s action violated the automatic stay. He directed that the parties hold another hearing where he will decide what sanctions to impose on the bank for violating the stay.

To read Peck’s opinion, click here. The opinion was handed down in a lawsuit called Bank of America NA v. Lehman Brothers Holdings Inc. (In re Lehman Brothers Holdings Inc.), 08-1753, U.S. Bankruptcy Court, Southern District New York (Manhattan).

In another development, Lehman sued Nationsfirst Lending Inc. on Nov. 15 alleging that the mortgage lender is in breach of contract for failing to repurchase defective mortgages. Lehman sued in U.S. District Court in Santa Ana, California, saying there were misrepresentations about borrower’s identities and occupations. For Bloomberg coverage, click here.

The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008, and sold office buildings and the North American investment banking business to London-based Barclays Plc one week later.

The Lehman brokerage operations went into liquidation on Sept. 19, 2008, in the same court. The brokerage is in the control of a trustee appointed under the Securities Investor Protection Act.

The Lehman holding company and its non-brokerage subsidiaries filed a revised Chapter 11 plan and disclosure statement in April. For details, click here and here for the April 15 and 16 Bloomberg bankruptcy reports.

Lehman said it intends on amending the plan in the last quarter of the year and have the plan approved in a confirmation order by March.

The Lehman holding company Chapter 11 case is In re Lehman Brothers Holdings Inc., 08-13555, while the liquidation proceeding under the Securities Investor Protection Act for the brokerage operation is Securities Investors Protection Corp. v. Lehman Brothers Inc., 08-01420, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).

New Filings

Vertis and American File Again, Prepacking This Time

Vertis Inc., an advertising and marketing services provider, filed a prepacked Chapter 11 reorganization last night in New York when it became clear that the required 98 percent of debt holders wouldn’t accept so the exchange offer could be completed out-of-court.

Vertis said in a court filing that more than enough debt holders already accepted the plan so it can be confirmed. The plan reduces debt 60 percent, or more than $700 million. The petition listed assets of $1.49 billion against debt totaling $1.56 billion.

Debt is comprised of a $115.4 million revolving credit and a $428.6 million term loan. There are $495.1 million in third-lien notes and $258 million in pay-in-kind notes.

Avenue Capital Management, whose affiliates have 59.2 percent of the stock, also hold $120 million of the term loan, $79.3 million of the third-lien notes, and $146.5 million of the pay-in-kind notes.

The plan will give holders of the second-lien notes between 8.49 and 8.065 shares of new stock for each $1,000 in debt. The PIK debt holders are to have 2.46 shares for each $1,000 in existing debt. In the exchange offer, the new stock would be issued after a 60,111-to-1 reverse stock split.

Holders of the second-lien debt can also buy up to $100 million in additional equity to be used for further reduction in company debt. The offering is backstopped.

Vertis said it has commitments for a $175 million revolving credit and a $425 million term loan to be implemented when the exchange offer or reorganization is completed.

Second-lien debt holders received a 2.5 percent consent fee for tendering by Nov. 15. Holders of PIK debt received a consent fee in the form of an additional 0.82 shares for each $1,000 in tendered debt.

Previously, Vertis was offering a combination of cash, new senior secured notes, and stock. First announced in April, the exchange offer was amended several times. In May, Vertis was aiming to reduce debt $185 million.

The new filing comes slightly more than two years after Vertis and American Color Graphics Inc., the third-largest insert printer in North American, merged by confirming companion Chapter 11 reorganizations. Completed in August 2008, the companies’ previous reorganizations reduced their combined debt by almost $1 billion.

Brentwood, Tennessee-based ACG had $528 million in debt before the prior bankruptcy while the debt of Baltimore-based Vertis was $1.7 billion at the holding company. Vertis was the survivor in the merger.

The new case is In re Vertis Holdings Inc., 10-16170, U.S. Bankruptcy Court, Southern District New York (Manhattan). The prior cases were In re ACG Holdings Inc., 08-11467, and In re Vertis Holdings Inc., 08-11460, both in U.S. Bankruptcy Court, District of Delaware (Wilmington).

American Media Has Prepack with One Dissenting Class

American Media Inc., the publisher of Star and National Enquirer, filed a Chapter 11 petition yesterday in New York along with a reorganization plan already accepted by every class of affected creditors except holders of $7.5 million in notes due in 2011. The consumer magazine publisher believes the plan can be confirmed using the cramdown process.

Boca Raton, Florida-based American Media listed assets of $668 million against debt totaling $1.23 billion. Borrowed money is almost $880 million.

American Media is the “most highly leveraged” in the publishing industry, according to Chief Financial Officer Christopher Polimeni.

Liabilities include $491 million on a first-lien obligation, including a $60 million revolving credit and a $431 million term loan. There are $356 million in subordinated notes.

Holders of notes due 2011 are owed $7.5 million while pay-in-kind notes represent $24.8 million.

The plan calls for the revolving credit to be paid in full while the term-loan lenders receive 70 percent in cash with the remainder in second-lien notes, for full payment. Some of the creditors are providing a backstop where term-loan lenders can have their new notes purchased for cash in the full face amount.

Holders of the subordinated notes are to have 98 percent of the new stock for an estimated 53.5 percent recovery. Holders of the 2011 notes, who rejected the plan, are to have the other 2 percent of the new equity for the same 53.5 percent recovery.

For full payment, holders of the pay-in-kind notes are to be given a combination of new second-lien notes, new pay-in-kind notes, or new preferred stock.

American Media said there is about $20 million owing to trade suppliers. General unsecured creditors are to be paid in full under the plan.

The debt structure after plan confirmation will consist of a new $40 million revolving credit and a $385 million first-lien loan. There will be up to $140 million in new second-lien notes. Given currently favorable market conditions, American Media intends for the new first- and second-lien notes to be sold during the Chapter 11 case with the proceeds in effect held in escrow.

A court filing says that earnings before interest, taxes, depreciation, and amortization were $114 million for the fiscal year ended in March. In the September quarter, net income was $10 million, the filing said.

American Media has been the subject of several major transactions over the last decade. It was acquired by Evercore Partners LLP in 1999 in a $638 million transaction, according to information compiled by Bloomberg. In 2009 there was a tender offer where bonds were exchanged for 95 percent of the stock.

A tender offer that began in July for the subordinated notes was unsuccessful, leading to agreement on the prepackaged plan. For details on the failed exchange offer, click here for the Nov. 1 Bloomberg bankruptcy report.

The case is American Media Inc., 10-16140, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Local Insight Files to Save Preference Claim on Loan

Yellow page publisher Local Insight Regatta Holdings Inc. filed for Chapter 11 reorganization last night in Delaware, less than 90 days after secured lenders perfected a pre-existing security interest in some of their collateral.

In addition to an Internet business, Local Insight publishes 870 directories for 115 phone companies. Advertising revenue “declined significantly,” court papers say.

Debt on the Regatta Holdings companies includes a secured $311 million term loan and a $26 million revolving credit. The Chapter 11 case will be financed with a $25 million secured loan, where $7.5 million will be available on an interim basis. JPMorgan Chase Bank NA is agent for the lenders. In addition, $221 million is owning on senior subordinated notes.

At the Local Insight line of companies there are $258 million in bridge loans now owing to venture capital investor Welsh, Carson, Anderson & Stowe, the controlling shareholder. The Local Insight companies owe another $214 million on two issues of subordinated notes.

Trade suppliers are owed $8 million, according to court papers.

Revenue for six months ended June 30 was $266 million, down 8.3 percent from the same period the year before. In the half year, earnings before interest, taxes, depreciation and amortization were off 19.7 percent, according to Moody’s Investors Service. Moody’s said that consumers are moving away from print to online search tools.

Court papers say the security interest was not perfected on time against The Berry Co. LLC and is subject to being knocked out as a preference. Berry is in the Regatta line of companies

Regatta Holdings reported a net loss of $9.2 million in the first six months this year, an improvement over the $11.3 million net loss in the same period last year.

The case is In re Local Insight Media Holdings Inc., 10-13677, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Charlie Brown’s Steakhouses Files to Sell in Ch. 11

The owner of Charlie Brown’s Steakhouse filed under Chapter 11 last night to sell the business. Controlled by Trimaran Capital Partners, the company also operates Bugaboo Creek and The Office restaurants.

Currently, 39 restaurants are in operation. Before bankruptcy, 47 locations were closed.

Debt includes $70 million owing on a secured term loan and revolving credit. There is $14 million owing on second-lien senior subordinated notes and $30 million on a mezzanine loan.

The senior secured lenders are Ableco Finance LLC, Wells Fargo Capital Finance Inc., and Ally Commercial Finance LLC.

Food supplier Sysco Corp., owed $5 million, is listed as having the largest unsecured claim.

The case is CB Holding Corp., 10-13683, U.S. Bankruptcy Court, District of Delaware (Wilmington).


SunCal Judge Says Lehman Stay is Sword, Not Shield

The reorganization of SunCal Cos., a California developer, was put on hold yesterday by the bankruptcy judge in Santa Ana, California, until the so-called automatic say is modified in the Chapter 11 case of Lehman Brothers Holdings Inc. Lehman companies are part-owners and lenders to SunCal projects.

Lehman and SunCal are proponents of competing Chapter 11 plans. SunCal was barred from filing its plan because to do so would have violated the automatic stay in Lehman’s reorganization.

U.S. Bankruptcy Judge Erithe A. Smith issued an opinion yesterday where she recited the maxim that the automatic stay is a shield, not a sword. By preventing SunCal from proceeding with its plan, she said the “Lehman shield is a shield with blades.” She said that SunCal’s “attempts to penetrate that shield have been unsuccessful.”

She called a halt to most proceedings the SunCal cases at least until Feb. 18 when she will revisit the issue and decide whether the case can go forward.

SunCal has an appeal outstanding in the U.S. Circuit Court of Appeals in Manhattan from a New York bankruptcy court order refusing to modify the automatic stay in Lehman’s case. Once the circuit court issues a decision, “all matters should proceed,” she said.

Meanwhile, Smith sent all the parties to mediation. For a summary of the competing plans, click here for the Oct. 4 Bloomberg bankruptcy report.

The automatic stay stops all manner of court proceedings pertaining to Lehman’s property, even proceedings in another bankruptcy court. Since SunCal’s plan would affect Lehman’s mortgages, the Lehman automatic stay precluded SunCal from moving ahead with its plan.

The SunCal cases with the competing plans involve about 20 companies. SunCal says that Lehman values the properties at $461 million while SunCal says the value is $246 million. Lehman’s disputed claim is $1.94 billion, SunCal says.

The SunCal Chapter 11 filings occurred in November 2008 after Lehman’s bankruptcy shut off funding for the projects. SunCal was California’s largest developer of master planned communities, with 250,000 residential lots and 10 million square feet of commercial space in 50 projects. Not all SunCal projects are involved in the cases related to the dueling plans.

The case in which the papers are filed is In re Palmdale Hills Properties LLC, 08-17206, U.S. Bankruptcy Court, Central District of California (Santa Ana).

Tronox Wins Plan Confirmation, Shareholder Keep Warrants

Tronox Inc. convinced the bankruptcy judge at yesterday’s confirmation hearing to approve the reorganization plan for the world’s third-largest producer of the white pigment titanium dioxide. Confirmation was simplified by a settlement that converted shareholder opposition into support.

To bring existing shareholders on board, equity holders received an improvement in their warrant package. Before the settlement, existing shareholders were to receive two-year warrants for 5 percent of the new stock exercisable at a price reflecting a $1.5 million enterprise value.

The product of mediation, the settlement gives shareholders warrants for 7.5 percent of the new stock. The new package of seven-year warrants has 3.5 percent based on a $1.4 billion enterprise value and 4 percent based on a $1.5 billion enterprise value.

Tronox’s plan is financed in part by a $185 million backstopped rights offering. For details on Tronox’s plan before the changes for shareholders, click here for the Sept. 2 Bloomberg bankruptcy report.

The Chapter 11 petition by Tronox in January 2009 listed assets of $1.56 billion against debt totaling $1.22 billion. Debt includes $213 million on a secured term loan and revolving credit, $350 million in 9.5 percent senior notes, and a $40.7 million accounts receivable securitization facility. Tronox’s products are used in paints, coatings, plastics, paper and consumer products. The operations outside of the U.S. did not file.

The case is In re Tronox Inc., 09-10156, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Point Blank Tries New Strategy to Unravel Settlement

Point Blank Solutions Inc., a manufacturer of soft body armor for the military and law enforcement, is using another procedural tactic in an effort at recovering $35.2 million held in escrow pending final approval of a class-action shareholders’ suit.

Point Blank filed a motion in mid-September to reject the settlement agreement as an executory contract. Two weeks later, the U.S. Court of Appeals in New York reversed the lower court and set aside the settlement. The appeals court said the settlement violated Sarbanes-Oxley by handing out impermissible releases.

This week, Point Bank filed a lawsuit in bankruptcy court demanding that the escrow agent turn over the settlement funds as property of the bankrupt company.

The committee was supporting the effort at recovering the funds, hoping the $35.2 million would be available to pay $40 million in unsecured creditors’ claims. The funds also could be used to pay off $20 million of reorganization financing that matures on Dec. 31.

The class action was filed for investors who bought stock between 2003 and 2006. The former chief executive and chief operating officer were convicted in September of orchestrating a $185 million fraud.

Point Blank has a plant and head office in Pompano Beach, Florida, and a second plant in Jacksboro, Tennessee. Revenue in 2009 exceeded $153 million.

The Chapter 11 petition in April listed assets of $64 million against debt totaling $68.5 million. Debt included a $10.5 million secured loan paid off by financing for the Chapter 11 case. Point Blank said it also owes $28.2 million to trade suppliers.

The case is In re Point Blank Solutions Inc., 10-11255, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Arrow Air Agrees with Committee on Revised Plan Terms

Arrow Air Inc., once the largest cargo airline in Miami, will be filing a revised Chapter 11 plan, as the result of a variety of motions filed by the official creditor’s committee, including one for the appointment of a Chapter 11 trustee.

The committee said it was vehemently opposed to the plan that it claimed Arrow was attempting to cram down. In response, the committee filed a motion to appoint a trustee and for permission to bring suit against MatlinPatterson Global Advisors, which is both a secured lender and controlling shareholder of Arrow.

Arrow and the committee reached agreement on a term sheet for a revised plan. Court records say a revised plan will be filed. Terms of the plan weren’t spelled out.

Before the settlement, Arrow had a plan on file where MatlinPatterson would give up $1.6 million of its cash collateral. As lender, it would not have received any distribution on the $34.7 million deficiency claim.

The prior plan would have given unsecured creditors, with claims estimated to total between $30 million and $41 million, a recovery from 7.6 percent on the low side to 21.9 percent on the high end. The plan contemplated selling the shell of the corporation along with the operating certificate for $800,000 cash. The operating certificate allows conducting the business as an airline.

Also known as Arrow Cargo, the company at one time operated 60 flights a week with four leased DC-10-30 and three leased B757-200 aircraft. It was acquired in June 2008 by a fund affiliated with MatlinPatterson. When the Chapter 11 petition was filed, the funds were owed $72 million on secured and unsecured term loans.

The case is In re Arrow Air Inc., 10-28831, U.S. Bankruptcy Court, Southern District of Florida (Miami).

Accentia and Biovest Consummate Chapter 11 Reorg Plan

Accentia Biopharmaceuticals Inc., majority owner of Biovest International Inc., implemented the Chapter 11 plan yesterday that the bankruptcy judge in Tampa, Florida, approved in a Nov. 2 confirmation order.

The plan allows stockholders to retain stock, although diluted by shares issued to secured and unsecured creditors. The plan was designed to provide full payment for all creditors, with part of the payment coming from the conversion of debt to stock.

Accentia filed under Chapter 11 in Nov. 2008. Biovest is working on the commercialization of BiovaxID, a personalized cancer vaccine for some types of non-Hodgin’s lymphoma. The Accentia and Biovest companies are developing drugs to treat blood cancers and autoimmune diseases such as multiple sclerosis.

Accentia listed assets of $134.9 million against debt totaling $77.6 million.

The case is In re Accentia Biopharmaceuticals Inc., 08-17795, U.S. Bankruptcy Court, Middle District of Florida (Tampa).

Prepack Coming

Network Communications Announces Exchange Offer

Network Communications Inc., a publisher of printed and online real estate information, announced an exchange offer yesterday for the $175 million in senior unsecured notes due 2013. The company missed the June 1 interest payment on the notes.

Holders of the notes can swap for new common stock plus up to $45 million in new senior subordinated pay-in-kind notes. If noteholders don’t unanimously agree on the swap, the company said in its statement yesterday that it will complete the exchange through a so-called prepackaged Chapter 11 filing.

Unless extended, the offer expires on Dec. 15. The offer also requires consent from secured lenders.

In the most recently filed financial statements, the Lawrenceville, Georgia-based company reported a $3.8 million net loss for the quarter ended Dec. 6, 2009, on sales of $33.8 million. For nine months ended Dec. 6, the net loss was $10.5 million on sales of $105.2 million.

Assets at the time were on the books for $362 million, with total liabilities of $330 million.

Daily Podcast

Loehmann’s, Preference Reform, and the Foreclosure King: Audio

Whether Loehmann’s Inc. will pass quickly through Chapter 11, the need for reform of preference actions, and how foreclosure king David J. Stern may himself be foreclosed are discussed in the bankruptcy podcast on the Bloomberg terminal and To listen, click here.

Please upgrade your Browser

Your browser is out-of-date. Please download one of these excellent browsers:

Chrome, Firefox, Safari, Opera or Internet Explorer.